Alternative Delivery Models – Legal issues Kim Howell, Partner Geldards LLP

Why alternative delivery models? Savings – Pressures on budgets Efficiency savings already made Emergence of private sector provision Reassess the role of the local authority Community engagement How will your chosen model help you achieve these objectives? What are the opportunities and risks

Legal Issues Powers Democratic Control Procurement State Aid Employment

Service Delivery Models In-house Outsourced contract Strategic Partnership Shared Services Corporate Entity Mutual Trading Company Combination

Powers Identify a power s.2 Local Government Act 2000 s.111 Government Act 1972 s.120 Local Government Act 1972 S.123 Local Government Act 1972 s.1 Local Authorities (Goods and Services) Act 1970 Exercise of powers Constraints

Democratic Control Outsourced contract – Limited to control through contract New delivery vehicle May minimise local authority involvement to ensure Charitable status Eligibility for non-domestic rate relief Company not subject to constraints on local authority controlled and influenced companies Is this acceptable to members and public?

Procurement Is there a contract for services where Council buying from provider? If so, competitive procurement required in principle BUT Some potential to avoid competition process through concession contract, provided no realistic prospect of interest from other EU states. Take advice! Concessions Directive to be implemented

Procurement Public Contracts Regulations 2015 “Light touch” regime for some services Removal of distinction between Part A and Part B services “Teckal” exemption for in-house companies Exemption developed from case law included in 2015 Regulations

Procurement Public Contracts Regulations 2015 Reserved right for “mutuals” to participate in award of public contracts for some services Restricts competition to types of organisation that meet set criteria “Criteria includes employee ownership or participatory principles or active participation of employees, users or stakeholders and maximum 3 year term

State Aid – the ingredients Economic advantage out of State resources Provided to an economic undertaking Giving rise to a selective advantage Potential to distort competition Potential to affect trade between Member States

State Aid in outsourcing In the terms of transfer Business and assets transfer Pension arrangements Other deal terms In the ongoing relationship Service contract Back office support Property use

State aid solutions Market terms deal De minimis aid Possible exemptions include: Sports and recreation infrastructure Culture and heritage (including libraries) Services of general economic interest (SGEI) Carry out a State aid analysis when planning the structure

Employment Staff costs account may be a large part of service delivery budget – Is this your motivation for change? If reducing staff costs, how will you ensure the service can be run effectively? How will redundancies be funded? What impact will this have on the savings you are aiming to achieve?

Employment Employment opportunities and obligations Provided Council relinquishes “ control ", should minimise equal pay comparison risks if different terms and conditions emerge Cross employer comparisons where employers are “associated” Glasgow City Council CPG and Coria v Unison and Fox Cross Claimants 2014 Associated where one employer is a company of which the other directly or indirectly has control

Employment TUPE applies but opportunity to restructure provided rely on “ETO reason entailing changes in workforce” Code of Practice on Workforce Matters have regard to it rather than automatically apply it

Example – ML Community Enterprise Limited Spin out from Lambeth – Youth services Company with a representative Partnership Board Members comprise of subscribers and employees of the company One member, one vote

ML Community Enterprise Limited Why this structure? Council required: An employee led asset locked body with no ability to distribute profits to members Body capable of registration as a charity Democratic member voting structure

Example – People 2 People CIC Spin out from Shropshire CC – Social Services Company limited by shares Only founder members and employees can hold voting shares Dividends payable to shareholders One member one vote regardless of shareholding Board composition – Service user, employee, independent directors, managing director

People 2 People Why this structure? Council required: A social enterprise: Employee led Employees have financial dividend and controlling interest subject to statutory cap Democratic voting structure

Leeds Learning Disability Services Spin out from Leeds City Council Community benefit society Why this structure? Employee led Employees able to take a nominal shareholding

In Summary The same model will not suit all circumstances Structures do not deliver transformation Choice of suitable structure Effective implementation Range of factors influence choice of alternative model Financial implications Staffing implications Political acceptability of level of control

In Summary Develop proposals for transformation Identify and analyse the benefits/risks/costs of each model Map out process and implementation programme Implement plans Review Share your experiences with others on the journey!

Kim Howell DD : Mobile:

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